Academic journal article Public Administration Quarterly

The Crisis Effect on Performance Based Budgeting

Academic journal article Public Administration Quarterly

The Crisis Effect on Performance Based Budgeting

Article excerpt

THE MANAGERIAL FOUNDATION OF BUDGETING

The global economic crisis poses significant questions to both the theory and practice of budgeting, disputing the validity of well established theorems and practices.

The crisis questions the core notion of "performance" as well as other cardinal concepts of Performance Based Budgeting (PBB), such as the "greatest return in social utility" (Downs 1960), "political and social consent" (Key 1940)- notions central to the way state resources were allocated during the previous five decades.

The crisis influences the budgetary agenda, as new facts arise (such as climate change, clean energy, employment policies) which call for a revision of the methods and tools used up to now. Other issues which also emerge refer to the internal organization of the structures dealing with the budget as well as with the structures involved in recruiting, training and evaluating their staff.

The discourse on budgeting has been going on for a long time (Schik 1966): it is as old as administrative science and has always been one of its major issues. Administrative science and budgeting theory evolved in close interconnection: the methods and tools used by budgeting over time depicted the prevailing paradigm of the administrative science.

This article intends to clarify the main characteristics of the four distinct periods in the evolution of budgeting, and to point out the weak points that should be cured in the crisis aftermath. The conclusion drawn from this mapping is that there is a need for a reinforced central government model, different from any authoritarian or imperative model of the past. (Economist 2010). PBB used to offer a better, alternative, answer to the question "why public money were spent to Action A instead of Action B" (Key 1940) in comparison with the one offered by the classic executive budget theory (Thurmaier 1995).

Given the scarcity of resources, it becomes even more imperative to find the most appropriate criterion in order to choose among different options. Notions such as relative value, displacement costs (Lewis 1952) etc, should be re-examined under the light shed upon them because of the recent crisis.

Looking back at the initial managerial stages of the budgeting theory one observes that a primary emphasis was put on the central control of spending and the budget was used to guard from administrative abuses (Caiden and Wildavsky 1974). The detailed classification of objects of expenditure which was the main characteristic of the budget during the first period, turned out to be its weak point. The monitoring of all expenditure lines required a high capacity and led to the establishment of complicated and extended control mechanisms. Thus, it was the procedure of budgeting that gained all the attention and not the very essence of the budget itself, which is to pursue policy outcomes. Such an approach to the budget is not viable especially in the aftermath of the economic turmoil.

When budgeting entered the matured managerial era, it was disposed of the weaknesses observed during the first period. Its main objective was to manage the efficient performance of work and prescribed activities. Performance budgeting, officially introduced by the Hoover Commission (Cothran 1993), was the major contribution of the managerial era to budgeting. During this phase, the emphasis was given on the efforts to avoid the social engineering of reform; namely, to obviate the mechanistic transformation of budgeting and render it a tool to change the state and society (Lynch 1995).

It was considered (Bouckaert 1994) that the objectives of budgeting would be better accomplished through the implementation of a set of techniques, capable to replace the simple balance sheet debit-credit accounts and reflect the financing of (a sum of) (Boorsma and Mol 1995) single actions incorporating policy goals and aiming at specific results (Bouckaert 2002). …

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